Are Virginia Colleges Deferring Maintenance?

Source: State Council of Higher Education for Virginia

According to calculations of the State Council of Higher Education for Virginia (SCHEV), the replacement value of the buildings and grounds of Virginia’s public colleges and universities totals $12.2 billion. And according to the National Association of College and University Business Officers (NACUBO), institutions should plan for an annual reinvestment rate of between 1.5% and 3.5% of that replacement value to offset wear, tear and depreciation.

The Commonwealth established a maintenance reserve program in 1982 to provide funding for facility repairs that are not addressed in the institutions’ operating budgets and are too small to quality for bond financing. Examples might be roof repairs, boiler and chiller replacements, or major electric system upgrades.

Over the past 10 years, the Commonwealth has chipped in about $75 million per year to the maintenance reserve program, according to a report (page 212) submitted Monday to the SCHEV Resources and Planning Committee. That contribution has fallen consistently short of the 1% guideline ($120 million this year) that SCHEV recommends. As of 2011, the cumulative shortfall had grown to $501 million, and this year the state kicked in only l$63.2 million for higher-ed maintenance. 

Instead of funding the maintenance reserve out of operating revenue, the state addressed the condition of colleges’ buildings and grounds by making two state bond issues for new construction. Those outlays did improve the condition of college and university buildings and grounds. But the effect since FY 2009, states the SCEHV report, has been to change the funding source for the maintenance reserve program from the general fund to bond proceeds.  “As a result, the state bond funding for new construction, renovation and deferred maintenance is constrained by the annual debt capacity.”

As Finance Policy Director Dan Hix reminded SCHEV at its monthly board meeting today, the state has little capacity this year to issue new debt without jeopardizing its AAA bond rating. While some money may be available for higher-ed capital projects, he said, it won’t be much.

The practical consequence of state funding policy, Hix said, has been to compel colleges and universities either to generate their own maintenance funds by raising tuition or to simply put off maintenance projects. He offered no estimate of the size of the deferred maintenance liability.

Bacon’s bottom line: The Commonwealth of Virginia is constitutionally mandated to submit balanced budgets. But as I have blogged in the past, there are many forms of hidden deficit spending. One is unfunded pensions. Another is deferred maintenance. I was unaware before today that there was an issue with the condition of colleges’ buildings & grounds. But I’m not surprised. Deferring maintenance is one of the oldest fiscal tricks in the books — I lay odds that the practice dates back to Nebuchadnezzer and the Hanging Gardens of Babylon. Given the stress of higher-ed finances, no one would be surprised that it occurs here in Virginia as well.

While we have a sense of how much the state has short-changed its colleges and universities, we don’t know how many institutions sucked it up and found the money to conduct needed maintenance projects, and how many put off the spending for the next guy to worry about. Perhaps that’s an issue that boards of visitors could dig into. If not, maybe the bond rating agencies will find the practice of interest. One way or another, Virginia’s higher-ed system could be building up a big hidden liability.

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5 responses to “Are Virginia Colleges Deferring Maintenance?

  1. Is there anything to the notion that in 10 years, we will need far fewer buildings on college campuses? Is there any comparison to the physical plant of retailers such as Sears, Jacques Penne, et. al. ?

  2. What a killjoy you are Crazy… you actually have the temerity to suggest the traditional residential college bricks and mortar tradition might be changing?

    Oh go on….

    don’t be shocked.. we …. AGREE … but tell that to the folks who don’t want to give it up and want govt to continue to subsidize it…

  3. Indeed, Crazy, get with the program. No major donor wants to have his or her name inscribed on a website! Marble, baby.

    A standard discussion during my time at SCHEV, and the lack of interest shown by Bacon’s Usual Suspects reflects the crickets I usually heard in the room when Hix brought this up. Basing the estimate on 1 % of the replacement value is a placeholder for a real needs assessment, of course, and a true needs assessment might be shocking. And of course money is spent every day on maintenance and replacement. This discussion needs that data, too, for context.

    The decision to use bond money for this had me scratching my head, but heck, I guess people take their car to the shop and pay with a credit card and let that interest fester month after month after month.

    People want stuff and they don’t want to pay for it. If they don’t want to pay for it new, they really don’t want to pay upkeep. I dare you to find one reference in any campaign brochure this year about spending money on maintenance. (“And I promise that every HVAC unit will have a coil cleaning every six months!”) At the state level the budget must be balanced and the amount of debt is constrained to a reasonable level (to protect that sacred AAA rating), so stuff that matters….doesn’t….get….done.

    Oh, and does anybody out there really think we could replace all the state-owned facilities on all those campuses for $12 billion? Really? I don’t think so…..that number is the interesting one. (Did they use original cost on the Lawn and the Wren Building?)

  4. Capital Facilities are chump change compared to operational.. though.

    UVA looks to need what, 20 million per year and their total academic is what , 1.7 billion or have I got zeros wrong…?

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